A lesson from Serbia

As the Balkan economies struggle, the temptation for nationalist solutions will grow. Europe must take note

Supporters of Serbia's new president and leader of the Serbian Progressive party (SNS), Tomislav Nikolic, celebrate his victory in the Serbian presidential run-off in Belgrade on 20 May. Photograph: Andrej Isakovic/AFP/Getty Images

The election may look like a localised Serbian matter but it has the potential to develop into a regional and European problem. Apart from the dramas surrounding the Hague war crimes tribunal, the Balkans region has been away from the limelight for many years now. But several of its most significant political and constitutional problems remain unresolved. And now the corrosive impact of the recession and the eurozone crisis threatens to retoxify some of those unresolved issues.

Nikolic's supporters point out that since his public break with Seselj in 2008, he has trodden a resolutely pro-European path and discarded the uncompromising nationalism of his earlier career. Nonetheless, though Bosnia-Herzegovina is a political mess it would look even worse if the winds of nationalism started blowing from its neighbour. Equally, Kosovo's independence remains contested, backed by the key western powers but opposed by both Serbia and Russia.

In recent months, the EU high representative, Cathy Ashton, and her diplomatic team have been making steady progress in closing the gap between Belgrade and Prishtina. But if President Nikolic were to pursue a hardline on Kosovo then this good work could unravel. The stakes are high.

Ironically, Tadic's unexpected loss at the polls does not reflect any resurgent nationalism among the Serbian electorate. Rather he is being punished because the government, led by his Democratic party (DS), has presided over an increasingly calamitous economic downturn. Unemployment now stands at around 25% while in January US Steel pulled out of Smederevo, the metallurgical complex that accounts for 14% of Serbia's exports and on whom some 200,000 Serbs are directly or indirectly dependent.

Serbia's urban middle class, disillusioned by the economic failure and by a series of major corruption scandals, stayed away from the polling booths. Most striking of all was Nikolic's victory over Tadic in Belgrade, the stronghold of liberal Serbs. Now politicians outside Serbia are quietly holding their breath. Will Nikolic allow his erstwhile prejudices to spill out and unsettle regional stability?

In the immediate future, this is unlikely. The west, the US, Britain and Germany in particular put considerable diplomatic effort into persuading Nikolic to break with Seselj in the first place, arguing that unless he embraced the European Union he would always remain a marginal figure. In his first comments to the press, Nikolic stated that Germany was "Serbia's most important political ally", a particular surprise given that Angela Merkel has warned Serbia very publicly that it must soften its position on Kosovo or never achieve its overriding political goal – EU membership.

Furthermore, Nikolic as president does not appoint the government – he merely invites the leader of the biggest party in parliament to try to form a government. His own SNS is the largest party following parliamentary elections two weeks before the presidential runoff, but it will find it hard to find suitable coalition partners. So there is now a strong possibility that Boris Tadic will become prime minister at the head of a coalition government. The buzz word in Belgrade is "cohabitation", which will reduce the possibility of any dramatic shift to the right.

However, Nikolic's victory, combined with the disturbing rise of populism in Hungary, Serbia's neighbour to the north, should act as a wake-up call to the EU. The eurozone crisis has witnessed a rise in nationalist and even fascist parties on most parts of the continent. With some of the highest rates of unemployment and poverty, Balkan countries are susceptible to this creeping sickness. Indeed, one could argue that it is a credit to Balkan electorates that so far they have resisted the lure of nationalism.

But as their economies sag further (as they are predicted to do), the temptation for nationalist solutions will increase. Bosnia, Serbia, Kosovo and Macedonia are all still grappling with profound issues of political identity and stability which could yet turn nasty. It's another very good reason for European leaders to confront the crisis and stimulate economic growth.